Amid Ukraine crisis, Europe plays it safe

Mar. 8, 2014 - 11:08AM
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PARIS — The West may have slapped sanctions and threatened more moves against Russia as the Ukraine crisis deepens,but France plans to quietly pursue selling military hardware, including armored vehicles, to Russia, defense researchers and an industry source said.

Apart from France, the European allies have relatively few sales prospects to Moscow so have little trouble scrutinizing export clearances. Finland and Sweden have gone to high alert.

On March 6, Washington and the European Union announced measures including visa and travel bans against Russians and a freeze on assets after the Crimean parliament set a March 16 referendum to join Russia.

But Europe’s retaliatory measures were seen as strictly limited, reflecting a concern to protect the continent’s economic side since the U.S. has fewer direct business ties to Russia.

“It looks like the Europeans are extremely keen to do everything except anything that hurts their commercial interests,” said Nick Witney, senior policy fellow with think tank European Council on Foreign Relations.

“There is zero appetite to hurt business interests, and arms sales fit into that category,” he said.

France is in the spotlight on the defense area because of a €1.2 billion (U.S. $1.7 billion) deal with Russia for two advanced Mistral helicopter carriers, but Paris has also sent over armored vehicles for tests.

The Russian Army and Interior Ministry are putting the petit véhicule protégé, a highly protected small armored car, and the véhicule blindé leger, a scout car, through trials, an executive said.

Two PVPs and two VBLs were sent a “couple of weeks” ago for tests near Sochi in the Caucasus range, the executive said.

Renault Trucks Defense, which builds the two vehicles, denied the vehicles had been sent to the Russian Army.

The Russians would need 10 years to copy the VBL as the scout car’s amphibious design is a special feature, the executive said. So buying them from France is much faster than developing them indigenously. The scout car has been fitted with a more powerful engine and more armor.

If a sale were reached, the count would run to hundreds of units, the executive said.

The Marolles-en-Hurepoix factory, south of the capital, could use the business, specialist blog FOB reported Feb. 28 when the French ministry ordered 50 PVP units.

But focus last week was on naval matters, since the Vladivostok, a Mistral-class helicopter carrier built for the Russian Navy, sailed March 5 out of Saint Nazaire, western France, for its first sea trial.

The Vladivostok is part of a two-ship deal signed in 2011. DCNS is prime contractor, while the shipbuilder is STX, which is one-third owned by France and two-thirds owned by the Korean STX group. The government took that stake in 2008 amid concerns over French shipbuilding jobs.

That first ship is due for delivery in the fourth quarter of 2014, with the second, dubbed Sevastopol, due for handover 12 months later. Sevastopol is a Ukraine naval base but also home to the Russian Black Sea Fleet under a license agreement.

“The programs are going ahead as expected,” a DCNS spokesman said.

Thales supplies the radar for the ship, which uses the DCNS Senit command-and-control system.

The Vladivostok ship has specific changes from French Navy Mistrals, with larger hangars for helicopters and de-icing systems for sub-zero temperatures.

France pushed ahead with the Mistral sale despite deep concerns after Russia sent forces into Georgia in 2008 to seize the South Ossetia region.

The Baltic states — Estonia, Latvia and Lithuania — and Poland and Romania are presumably increasingly nervous about the Mistral’s “power projection capability,” Witney said. Those countries are members of the European Union, which held an emergency meeting March 6 in Brussels.

Moscow holds options for two more Mistral-class ships.

“France is trying to play down the issue as political discussions are being held. As [prime minister Laurent] Fabius says, ‘it is not an issue at the moment,’ ” said Jean-Pierre Maulny, deputy director, Institut des Relations Internationales et Stratégiques.

“The approach is ‘Keep quiet, it will all work out,’ ” Maulny said.

If an agreement can be reached on Ukraine, the Mistral can be delivered. If there is no accord, it will be hard for France.

“How can the delivery of the Mistral go ahead?” Maulny said.

The Ukraine crisis prompts the question: How to manage policy and economics at the pan-European level? “It is a structural problem,” Maulny said.

A Mistral cancellation for Russia is not on the agenda.

Defense Ministry spokesman Pierre Bayle said, “There is Ukraine on one hand and there is Franco-Russian cooperation on the other.”

As the Foreign Ministry has made clear, “Franco-Russian cooperation continues, so that is not in doubt,” Bayle said. “As France does not act in isolation — there are European meetings underway — we have to wait for political decisions.”

Among French companies, Thales has defense sales to Russia in the “low single figures” of millions, with most of the business in the civil sector, an industry source said. The electronics specialist, in 2008, set up local Russian production of the Damocles laser targeting pod and supplied gear for the T-90 tank, Ka-52 attack helicopters, MiG AT trainer and Su-30 fighter.

Thales declined to comment.

At a Russian trade show last year, Sagem announced agreements with local partners to build military equipment, but the French company had failed to sell the Felin infantry kit, losing to the domestic Ratnik Warrior system. Sagem’s parent company Safran was unavailable for comment.

Varying Responses

Among the Western allies, France and Germany are seen as the softest on Russia, U.K. and U.S. harder, and the toughest are the Baltic states, Maulny said.

In Britain, the authorities are reviewing export licenses for Russia.

The House of Commons Committee on Arms Export Control’s annual report showed the government has granted licenses for sniper rifles and assault rifles for private individuals and companies.

“None of the weapons referred to in the report were supplied to the Russian military. The government is reviewing all existing export licenses in the light of recent events,” a government spokesman said.

The British have also granted a small number of licenses for military-rated components for military vehicles, aircraft or naval vessels for ultimate supply to the Russian military or security services.

A review is also underway to decide whether these licenses should be revoked or suspended, the spokesman said.

The closest the U.K. came to a sizable sale was a JCB effort to sell military construction machines to Moscow. Negotiations took place into last year but industry sources said the British maker of civil and military diggers and loaders withdrew for commercial reasons.

For Finland, a March 3 decision to cancel Defense Minister Carl Haglund’s meeting with his Russian counterpart Sergey Shoygu in St. Petersburg underscored rising political tensions among Nordic governments and military chiefs to Moscow.

“My visit could have been misinterpreted as a statement of support for Russia’s actions in the Ukraine. We did not want this. On the contrary, Finland cannot approve how Russia has acted in the Crimea,” Haglund said.

Finland elevated its monitoring of Russian military activities close to its 840-mile eastern border.

Sweden sent a Saab Gripen fighter squadron to its forward Baltic Sea airbase on the island of Gotland, which is 160 miles off its southern coast.

Stockholm also ordered the Defense Advisory Committee to postpone completion of the Final National Security Report, seen as the basis for a planned 2015 review of defense-political strategy.

“The military situation with Russia in the Ukraine means that the Defense Advisory Committee should take another two months to assess the implications of the situation in before it finalizes the report,” said Karin Enström, Sweden’s defense minister.

Germany has suspended authorization for sale of weapons to Russia but that is unlikely to have much of an impact.

Berlin has not issued weapons export permits for Moscow for 10 years, the German Federal Ministry for Economic Affairs and Energy said. Yet, it has allowed other types of military equipment to be sold to Moscow.

Some unspecified “protected off-road vehicle” and electronic equipment were cleared for export, the ministry said.

Karcher Futuretech sold an unknown number of field camps and Rheinmetall did a €100 million deal in 2011 for the supply of a training facility.

In a statement issued March 7, Rheinmetall said it is meeting its obligations toward the Russian contractual partner for the training center.

“It is in its delivery phase and is supposed to become operational this year. ... We do not want to speculate about possible consequences of any further deterioration in the political climate with Russia,” the company said.

“In principle, Rheinmetall continues to see good potential in the Russian market. However, currently there are no concrete tenders which are being followed,” it said.

For Italy, defense exports to Russia were already feeling the effects of a new Russian policy to boost domestic production, well before the Ukraine crisis.

As Moscow moves from buying abroad to favoring home-grown industry, the delivery of 358 Italian military vehicles has slowed, an Italian source close to the deal said.

Contracts have been signed for the sale of the Iveco light multirole vehicle, but only 57 units are ready for use in Russia, where they have been parked and unused for a year, the source said. Another 126 vehicles have been delivered but are missing components, which are in Italy ready for delivery. The remaining vehicles are ready for delivery.

The source said the pace of Russian acceptance of the vehicles had slowed, possibly because of growing pressure to favor local products.

For Witney, the Ukraine situation could fuel statements at the NATO summit in September, when the alliance could decide to hold new military exercises in central Europe, call for more missile defense and renew the mutual guarantee commitment. ■

Andrew Chuter in London, Julian Hale in BrU.S.sels, Tom Kington in Rome, Gerard O’Dwyer in Helsinki and Albrecht Müller in Bonn contributed to this report.